What are Revocable Trusts?
These have commonly been called living trusts. A will is only effective upon the demise of the elder. Revocable trusts operate while living, through incapacity and continue through death.
The principal known as the grantor (e.g. the elder) creates a trust, which he may revoke or change while alive and competent. There is no income or estate tax savings associated with revocable trusts.
The grantor almost always, chooses himself and a successor trustee, perhaps his wife. The successor trustee can be a family member, beneficiary, friend, trust company or more than one, although if the trust is small, (under $500,000), a corporate trustee can be expensive. Corporate trustees are valuable for complex estates, strained family relations or mistrust, and investment advisory services.
As with all legal documents affecting elders, the proper choice of successor trustee cannot be over emphasized. Trust documents should clearly define the powers of the trustee especially upon incapacity or incompetence.
Transfers to the trust are tax-free and do not lose special tax characteristics (e.g. transfers of principal residence). Title of the assets must be transferred to the trust; schedules attached are not good enough. Upon death, the assets in a revocable trust are included in the grantors gross estate for federal estate tax purposes. Assets in the revocable trust are not included in the decedent’s probate estate.
Income from the trust is taxed to the grantor as the trust is treated as a grantor trust. Upon the death or incapacity of the grantor, the trust becomes an irrevocable trust requiring a Federal tax identification number and separate trust accounting.
Advantages of revocable trusts include continuity. The affairs of the elder continue to be managed by the trust. The trust is flexible so that assets can be professionally managed or managed by a family member or advisor. Trusts are reliable. Financial institutions are very comfortable dealing with trustees as the rules covering trustees are well established unlike dealing with power of attorney’s. Record keeping and custody is efficiently managed.
Standby revocable trusts are revocable trusts drafted and signed, but only funded with a small sum. Upon an event such as the incapacity of the principal, together with a durable power of attorney, assets are transferred to the trust.
Proper use of revocable trusts can avoid probate and speed up the distribution to the beneficiaries. In most states, revocable trusts protect the privacy of the deceased unlike probate property open to public record.
Similar to a will, assets in a revocable trust are distributed according to the trust document. This disposition is usually irrespective of the provisions in the will for disposition of the deceased probate assets.
Revocable trusts are not used for Medicaid planning or planning for individuals with disabilities or special needs.
These have commonly been called living trusts. A will is only effective upon the demise of the elder. Revocable trusts operate while living, through incapacity and continue through death.
The principal known as the grantor (e.g. the elder) creates a trust, which he may revoke or change while alive and competent. There is no income or estate tax savings associated with revocable trusts.
The grantor almost always, chooses himself and a successor trustee, perhaps his wife. The successor trustee can be a family member, beneficiary, friend, trust company or more than one, although if the trust is small, (under $500,000), a corporate trustee can be expensive. Corporate trustees are valuable for complex estates, strained family relations or mistrust, and investment advisory services.
As with all legal documents affecting elders, the proper choice of successor trustee cannot be over emphasized. Trust documents should clearly define the powers of the trustee especially upon incapacity or incompetence.
Transfers to the trust are tax-free and do not lose special tax characteristics (e.g. transfers of principal residence). Title of the assets must be transferred to the trust; schedules attached are not good enough. Upon death, the assets in a revocable trust are included in the grantors gross estate for federal estate tax purposes. Assets in the revocable trust are not included in the decedent’s probate estate.
Income from the trust is taxed to the grantor as the trust is treated as a grantor trust. Upon the death or incapacity of the grantor, the trust becomes an irrevocable trust requiring a Federal tax identification number and separate trust accounting.
Advantages of revocable trusts include continuity. The affairs of the elder continue to be managed by the trust. The trust is flexible so that assets can be professionally managed or managed by a family member or advisor. Trusts are reliable. Financial institutions are very comfortable dealing with trustees as the rules covering trustees are well established unlike dealing with power of attorney’s. Record keeping and custody is efficiently managed.
Standby revocable trusts are revocable trusts drafted and signed, but only funded with a small sum. Upon an event such as the incapacity of the principal, together with a durable power of attorney, assets are transferred to the trust.
Proper use of revocable trusts can avoid probate and speed up the distribution to the beneficiaries. In most states, revocable trusts protect the privacy of the deceased unlike probate property open to public record.
Similar to a will, assets in a revocable trust are distributed according to the trust document. This disposition is usually irrespective of the provisions in the will for disposition of the deceased probate assets.
Revocable trusts are not used for Medicaid planning or planning for individuals with disabilities or special needs.
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